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A-rated Lawson's five best UK small cap ideas
by Annabelle Williams on Mar 01, 2013 at 13:59
Doug Lawson, who runs the top performing Amati UK Smaller Companies fund alongside Paul Jourdan, reveals some of his best investment ideas.
The company occupies something of a niche, providing digital print heads to the ceramics industry.
While Lawson admits this ‘isn’t the most obvious market to be investing in’, he says this is a play on digital technology and emerging markets.
‘There is a big change going on in the manufacturing process, because they are replacing analogue print heads with digital ones,’ he said. ‘While the end market of ceramics is pretty slight, you have tremendous growth in the manufacturing process. The bulk of the market is in China too.’
While many large cap managers have accessed recession-proof consumer staples through FTSE stocks such as Unilever and Associated British Foods, Lawson has found an equally interesting investment case in Nichols, the manufacturer of Vimto.
‘Vimto is a staple in the Middle East, it’s their largest market and it’s been sold there for 100 years. It’s very popular during Ramadan because of the high sugar content and I have heard that in place of a bottle of wine on the table, you will see a bottle of Vimto.’
Nichols has also recently struck a distribution deal with Coca-Cola that will see the drink sold across Africa. This convinces Lawson the stock has long-term growth prospects.
‘The thing that attracted me to that company was that I was very impressed with the management team, I thought they were excellent,’ he said. ‘It’s a company that I would own for three, four, five years.’
There are few things sadder than visiting a theme park only to spend most of the day standing in a queue. Luckily, amusement park owners are investing in technology to solve the problem, and Lawson has bought into one provider, Lo-Q.
The company supplies ‘Q-bot’ devices that people use to log their place in the queue for a ride, and then wander round the park until they are called. Lo-Q has an attractive business model and the stock is very underbroked, Lawson said.
‘The thing we love about this business is that what you have to install around the park for this to work is very low capex and that’s paid for by Lo-Q. ‘They approach the park operators and say 'we will install this and share the revenues”, so you have an easy sell,’ he said.
‘The other reason they love it is if the punters are not standing in a queue, they are eating a burger or in the gift shop. ‘We were the first institutional investors. They have got a new chief executive in, Tom Burnett, and he’s really driven this forward. The share price [has] had a great run.’
The company runs football pools games and while Lawson admits it ‘sounds like a dinosaur’, its growth prospects in the US are far from extinct.
‘It throws off a lot of cash and they have been reinvesting in the US. They have the licence to operate the Tote in Connecticut, which is very profitable.’ Sportech is also in the process of appealing to HMRC over its VAT bill, claiming the game is one of luck rather than skill, which would make it exempt from VAT.
Tribal provides software to local authorities, and Lawson says investors have overplayed the potential effect of government spending cuts on its business model.
‘They brought in new management, who are very impressive,’ he said. ‘The company had a history of disappointing the market; the new management recognised this and tend to underplay Tribal’s prospects so they always surprise on the upside. ‘I really like stocks like that, where you can see 20% appreciation in the ratings and 20% appreciation in the earnings.’